Can you provide input on the decision to lump sum an investment in 529 for young kids to maximize tax advantaged growth vs contribute slowly to maximize taking full advantage of state tax credit (which has annual limit)?
- Assume 529 works well for us. We max out all other available tax advantaged space and have enough leftover to invest in a brokerage account. We will invest the same total amount, just a question of if it is in brokerage account or 529. We wont have enough income to just cash flow college (unless pausing tax advantaged account contributions).
- I think a target of 4 yrs in state total cost is reasonable for 529 (~110K today). For this purpose will guess 200K in 20 yrs
- Utah credits state tax on max ~5K annual 529 contribution per child (this amounts to $220/yr) and has been increasing annually.
Option A - 5K annual contribution (increasing if max state tax credit limit increases). 5K annually x 20 yrs with 6% growth = 200K (95K of tax free growth). Which seems reasonable. Plus $220 state tax credit x 20 yrs at same 6% growth = $8800 in total state tax credit. 208K total value.
Option B - 65K contribution today (or realistically over a few years) and then stop. 63K x 20 yrs with 6% growth = 208K (140K tax free growth). Total state tax credit is $220 from 1 year of contribution. 208K total value.
Option C - Some kind of both/and. 25K lump to start, and then continue annual contributions to get state tax credit. Stop if balance seems too high.
- Assume 529 works well for us. We max out all other available tax advantaged space and have enough leftover to invest in a brokerage account. We will invest the same total amount, just a question of if it is in brokerage account or 529. We wont have enough income to just cash flow college (unless pausing tax advantaged account contributions).
- I think a target of 4 yrs in state total cost is reasonable for 529 (~110K today). For this purpose will guess 200K in 20 yrs
- Utah credits state tax on max ~5K annual 529 contribution per child (this amounts to $220/yr) and has been increasing annually.
Option A - 5K annual contribution (increasing if max state tax credit limit increases). 5K annually x 20 yrs with 6% growth = 200K (95K of tax free growth). Which seems reasonable. Plus $220 state tax credit x 20 yrs at same 6% growth = $8800 in total state tax credit. 208K total value.
Option B - 65K contribution today (or realistically over a few years) and then stop. 63K x 20 yrs with 6% growth = 208K (140K tax free growth). Total state tax credit is $220 from 1 year of contribution. 208K total value.
Option C - Some kind of both/and. 25K lump to start, and then continue annual contributions to get state tax credit. Stop if balance seems too high.
Statistics: Posted by xcskier — Thu May 30, 2024 10:37 am — Replies 5 — Views 351